1. In pursuance of an order of this court made under s. 27(3) of the W.T. Act (hereinafter referred to as 'the Act'), the following question has been referred by the Income-tax Appellate Tribunal :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the value of the shares purchased by the assessee in the names of her minor sons could not be included in her net wealth under section 4 of the Wealth-tax Act ?'
2. The assessee has two sons, Satish and Anil, who were admittedly minors on the relevant valuation date, which was 31st March, 1963. The assessee initially transferred Rs. 35,000 to the account of each of her two sons on 5th May, 1961, and she purchased 10 shares of Messrs. Colour Cartons Ltd. in the name of each of them on the next day, that is, 6th May, 1961. Another amount of Rs. 10,000 was transferred to the account of each of the minor sons by her on 18th December, 1961, and on 21st December, 1961, 90 shares of Messrs. Sentinel Rolling Shutters and Engineering Co. Pvt. Ltd. were purchased in the name of each of them. The assessee gave Rs. 20,000 to each of the two sons in December, 1962, for the purchase of 20 shares of Messrs. Colour Cartons Ltd. in the name of each of them. Admittedly, the dividends received in respect of the shares of Messrs. Colour Cartons Ltd. were credited to the account of the minors with the Bank of Baroda. On 30th March, 1963, a sum of Rs. 1,800 was debited to the savings bank account of each of the two sons. The said amount is said to have been paid to the assessee as interest on loan from her. A similar entry for Rs. 2,600 was made on 6th April, 1964, in the saving bank account of each of the two minors. On 18th May, 1964, 30 shares of Colour Cartons Ltd. held in the name of each of the two sons were sold and a sum of Rs. 95,472 was credited in the account of each of them on that day. One month later, that is, on 19th May, 1964, Rs. 65,000 were debited to the account of each of the two sons. It was claimed by the assessee that this was on account of repayment of loan originally advanced by the assessee to her two minor children.
3. In the assessment for the year 1963-64, the WTO included the value of the share held in the names of the minor sons in the net wealth of the assessee as also the balance in the saving bank account of the minor sons. He, however, excluded the amount of Rs. 1,30,000 which had been transferred earlier to the two minors. Before the WTO it was stated on behalf of the assessee that a loan was given by her to her two minor children and that she had received interest on this loan from her sons. The WTO purported to invoke the provisions of s. 4(1)(a)(ii) of the Act for the purpose of including the value of the shares and the balance in the saving bank account in the name of the two minor children in the net wealth of the assessee.
4. In the appeal filed by the assessee, the AAC, who was also dealing with the appeal filed y the assessee against the order of the ITO in assessment proceedings for the assessment year 1963-64, took the view that the assessee could not have burdened the minor with the liability of the loan said to have been advanced by her and he further took the view that the so-called loan was merely a transfer of amount to a bank account standing in the same of the minor sons, which was jointly operated by the assessee and her husband. He held, on a consideration of the relevant circumstances, that the assets shown to have belonged to the minors remained that of the assessee all along and so far as the proceedings for assessment of income-tax were concerned, it was wholly unnecessary to apply the provisions of s. 64 of the I.T. Act, 1961. In keeping with this view, the AAC held that the computation of net wealth made by the WTO was correct.
5. The assessee then filed two appeals before the Income-tax Appellate Tribunal arising out of proceedings for assessment under the I.T. Act and the W.T. Act. Both the appeals were decided by a common order by the Tribunal. The case of the assessee before the Appellate Tribunal was that the assessee had considerable funds of her own and she had lent a part of her funds to her sons to enable them to purchase shares in their names, that she had charged interest to each of them and that when the shares were sold at a good profit, the principal amount was recovered by her from both of them. The contention on behalf of the department before the Tribunal was that to all intents and purposes, the assessee had transferred the funds from one of her own account to another of her own account and that the claim that a loan was advanced to the minors was a mere eyewash. The Tribunal took the view that 'there was nothing to stop anybody entering into a contract with a guardian of a minor and there is nothing objectionable in any person transferring any amount in his individual capacity to himself as guardian of his minor child'. Considering the circumstance that there was nothing in either or the two accounts of the minors to suggest that any amounts were utilised for the benefit of the assessee and that the dividends had been credited to their accounts and no part of those dividends had been utilised by the assessee or that there was nothing to suggest that the surplus realised on the sale of the shares was utilised for the benefit of the assessee, the Tribunal took the view that it was not possible to support the conclusion of the tax authorities that the shares and the accounts in question belonged to the assessee. The Tribunal also took the view that interest charged by the assessee to the minors was about 4% which could not be called inadequate and, therefore, it was not possible to bring the transactions within s. 64(4) of the I.T. Act. The Tribunal, therefore, observed that income from dividends earned on shares held in the names of the assessee's sons would, therefore, be excluded from her net income and that the shares purchased in the names of her sons would be excluded from her net wealth while the loan of Rs. 1,30,000 in all would be included in her assessment.
6. The revenue then asked for a reference to be made to this court and that reference application having been rejected by the Tribunal, the revenue approached this court under s. 27(3) of the Act as well as under s. 256(2) of the I.T. Act, 1961. So far as the present reference under the W.T. Act is concerned, we have already reproduced the question which has been referred.
7. After hearing the learned counsel for the revenue and the assessee and having regard to the controversy which is involved with regard to the excludability of certain items of wealth in the net wealth of the assessee, we think it necessary to modify the question slightly by deleting the words 'under section 4 of the Wealth-tax Act' from the question. The question in the modified from would, therefore, be read as follows :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that a value of the shares purchased by the assessee in the name of her minor sons could not be included in her net wealth ?'
8. The learned counsel appearing on behalf of the revenue has contended that the Tribunal has proceeded on and entirely erroneous footing when it proceeded to decide the appeal before it on the ground that the assessee, as the mother of her two minor sons, was entitled to act as a guardian of her two minor sons and, according to the learned counsel, the transaction of alleged loan, if considered in its proper respective, was nothing more than a mere transfer of some amount from her own account by the assessee to the account nominally in the names of her two minor sons which was to be operated by the assessee herself as well as by the husband of the assessee. In other words, it is contended that there is in law no transfer at all of any moneys and the AAC was right when he held that the shares and the balance in the savings bank account of the two minor children were liable to be included as a part of the net wealth of the assessee.
9. Mr. Mehta appearing on behalf of the assessee has contended that the form in which the question has been directed to be referred earlier by this court and has consequently been in fact referred by the Tribunal cannot take in the controversy whether there was in law any loan at all. According to the learned counsel, the question which has been referred must be taken to have assumed that there is a valid transfer in favour of the two minor sons. Our attention was also invited to what was described by the learned counsel as f finding of fact recorded by the Tribunal when the Tribunal has observed in para. 4 of its order disposing of the appeal that 'It is, therefore, not possible to support the conclusion of the tax authorities that the shares and the accounts in question belonged to the assessee'. The learned council contended that the transfer of moneys in favour of the minor sons must now be assumed to have been validly made and all that could be debated with reference to the question which is referred to the court is whether the transfer satisfied the requirements of s. 4 meaning thereby that it had only to be found whether the transfer was for adequate consideration or not.
10. It is not possible to accept the contention that the scope of the question is limited only to whether the transfer satisfied the requirements of s. 4(1)(a)(ii), namely, whether the transfer is for valid consideration or not. It was the assessee who filed the appeal before the Appellate Tribunal against the order of the AAC. The AAC had positively come to the conclusion that the assets, namely, the moneys which were shown to have been transferred in the names of her two minor sons from time to time continued to belong to the assessee herself. The AAC had also taken the view that the accounts in the names of the minors were to be operated jointly by the assessee and her husband and, therefore, there was nothing to prevent the assessee from withdrawing the funds whenever she liked. When the appeal was before the Tribunal, the two aspects which the Tribunal had to consider were, firstly, whether the AAC was right when he held that there was in fact no transfer of any moneys to the minors at all and that the monies continued to belong to the assessee herself in spite of the fact that they were shown to have been credited in two separate accounts standing in the names of the minors which were to be operated by the assessee herself and her husband, and the second aspect which had to be determined by the Tribunal was whether there was a valid transfer, if at all there was a transfer, and if there was a valid transfer, whether that was for an adequate consideration. Unless the Appellate Tribunal first came to the conclusion that there was a valid transfer, it could not have set aside the finding recorded by the AAC that the moneys continued to belongs to the assessee herself. The question as to whether there was adequate consideration or not would fall for consideration only if the transfer was a genuine transfer. Therefore, unless the Tribunal first came to the conclusion that there was a genuine transfer and further that the transfer was for adequate consideration, it could not have held in favour of the assessee that the amounts were advanced as loans and, therefore, certain amounts had to be excluded for computing the net wealth of the assessee. It was in the context of the first question, namely, whether there was a valid transfer of the months that the Tribunal took the view that there was nothing to prevent a natural guardian from entering into a contract and there was nothing objectionable in any person transferring any amount in his individual capacity to himself as a guardian of his minor child. Having thus put down this legal proposition, the Tribunal went on to consider the fact of the case before it and on the circumstances enumerated earlier, it came to the conclusion that the amounts in question did not belong to the assessee. It was only thereafter that the Tribunal found that the assessee having taken interest on the loans advanced to the minor children, the transfer could be said to be for adequate consideration and that is how the Tribunal reached its final conclusion that s. 4(1)(a) was not attracted in the instant case.
11. It is this order of the Tribunal that has now been subjected to the scrutiny in the form of the question which has been referred. The reference to s. 4(1)(a)(ii) in the question originally referred must be read in the context of the view which has been taken by the Tribunal. There can hardly be any dispute that the crucial question in the context of which s. 4(1)(a)(ii) has been referred is whether the amounts which were said to have been advanced by the assessee to her minor sons were in fact loans and, if they were so, whether they were for adequate consideration. It would, therefore, not be correct to contend that the question which was originally referred must now be restricted to only the determination of the Tribunal as to whether the loan was for consideration or not. The legal validity of the alleged transaction or the nature of the alleged transaction was very much put in issue. The proposition of law on which the Tribunal proceeded to hold that the transaction was really in the nature of a loan advanced by the mother to her minor sons was that a guardian could in her capacity as guardian take a loan from herself in her individual capacity. It is the validity of this legal proposition which is now seriously in dispute on the argument on behalf of the revenue. That is why we have reframed the question. If the contention of the revenue is accepted that the assessee, who is the mother of the two minor children, was not in now law a guardian at all, then the further question of her accepting any loan from herself in her individual capacity would not arise.
12. We, must, therefore, first turn our attention to the question as to whether the transaction as a result of which certain amounts are said to have been transferred by way of loan to the minor sons can really stand scrutiny having regard to the provisions of the Hindu Minority and Guardianship Act. We have reproduced earlier the contentions on behalf of the assessee before the Tribunal. There is now no doubt that it was expressly urged before the Tribunal that the assessee while purporting to accept the several amounts said to have been advanced by her to the minors was acting as the guardian of the minor. In other words, money belonging to her in her individual capacity was being transformed into a loan in favour of the minor who was incompetent to contract and, therefore, the loan was said to have been received by herself in her capacity as the guardian of the minor. The learned members of the Tribunal, however, seem to have overlooked the positive provisions of s. 6 of the Hindu Minority and Guardianship Act which clearly provide that the natural guardian of a Hindu minor in respect of the minor's person or property, in the case of a boy, is the father and after him the mother. There is no doubt in this case that the father of the two minor children of the assessee was alive because the accounts in the names of the minors were to be operated by the father an the mother (the assessee) of the minors. Any transaction which had to be entered into on behalf of the two minor children could in law be entered into only by the father, who was the natural guardian. As long as the natural guardian was alive, the mother has no legal capacity to act on behalf of her minor children unless, of course, she gets herself appointed as a guardian through the civil court on grounds which may be permissible to seek such an appointment. Therefore, when the assessee was purporting to act as the natural guardian of the minor and in that capacity wanted to create a liability against the minor in form of a loan advanced by her personally to herself in her capacity as the natural guardian, if the intrinsic capacity of the natural guardian was lacking there was really no transaction which can be said to have been validly entered into by the assessee representing two different capacities, one as individual and the other as a natural guardian. The whole story of money being advanced by her to the minors represented by herself as a natural guardian must, therefore, be rejected in the face of the express provisions of s. 6 of the Hindu Minority and Guardianship Act. Such a transaction could not, therefore, create any liability against the minor and, strictly speaking, there is not transaction of an advance of loan to the minor which can be legally taken notice of the mere fact that the assessee chose to describe herself as the natural guardian did not clothe her with any legal power to act on behalf of the minors and consequently, even though she purported to create two separate accounts in the names of the two minor sons, they must be treated as her own accounts which she was free to operate at her own sweet will. Thus, the very basis of the finding of the Appellate Tribunal that the assessee could in her capacity as natural guardian take loan from herself in her individual capacity was erroneous and consequently all further findings of the Appellate Tribunal when it came to the conclusion that the amounts lying in the accounts of the two minor children belonged to the minor children and not to the assessee must stand vitiated.
13. Once we come to the conclusion that there is no transfer at all in law, strictly speaking, the question of the applicability of s. 4 and, therefore, including the amounts lying in the accounts of the two minor sons via the procedure of s. 4 of the Act need not be taken resort to, as was rightly done by the AAC. As already pointed out, it was with regard to the legal position which transpired at the hearing at the hearing that we have amended the question.
14. It is not possible to entertain a contention on behalf of the assessee that it was not open to the revenue at this stage of raise an argument that the assessee was not the natural guardian of her minor sons. We are concerned with the legal capacity of the assessee to act on behalf of the minors and if she was not vested with that legal capacity, the mere fact that the Tribunal proceeded on the footing that she was the natural guardian and that no contention appears to have been specifically raised before the Tribunal that she was not the natural guardian, could not prevent the revenue from urging this question which was a pure question of law based on the provisions of the Hindu Minority and Guardianship Act.
15. Mr. Mehta appearing on behalf of the assessee has contended that there was no material on record to indicate whether the account was operated by the father because, according to the learned counsel, if the account was operated by the father of the minors, then it would be possible for the assessee to argue that it was the natural guardian of the minor children who was operating the accounts. The learned counsel contended that this was a case in which the Tribunal should be directed to send an additional statement of case on the basis of which it would be possible to contend on behalf of the assessee that the assessee had not operated any account standing in the name of the minor children and that the father himself was acting as the natural guardian.
16. We do not think that such a course is necessary in the present case. As already pointed out, we are really concerned with the initial transaction which admittedly, even accordingly to the assessee, was brought about by her acting in both capacities. It was not the case of the assessee that when the purported to advance loans in the names of the minor children, those loans were received by the father or at least were shown to have been received by the father. Indeed, as already pointed out, the very basis on which the Tribunal has proceeded was that it was perfectly competent for the assessee to create a liability against the minor by her acting as their natural guardian by taking a loan from herself in her individual capacity. The question as to whether the father was in the picture at any stage does not now become relevant. It will, therefore, not be possible to accept the contention that any additional statement of case should be called for.
17. In the view which we have taken, the question in this reference must be answered in the negative and in favour of the revenue. Revenue to get the costs from the assessee.